Communication is the Key to a Successful Compensation Committee
Source: The Marc Rosenberg Blog
The following includes excerpts, reproduced with permission, from a blog entry by Marc Rosenberg.
The characteristics of an effective compensation committee (CC), per David Maister, are:
- If the people being judged do not trust the judges, the system won't work. Period!
- Judgments should not be made until a sincere effort has been made to analyze all pertinent information.
- The laws governing the decisions must be consistent and well understood.
- Judgments explained are more readily understood and accepted than those that are not.
The biggest complaint I hear from firms about their CCs is that the group takes on the image of a “smoke-filled back room,” an inner circle of cigar-smoking, powerful politicians meeting privately to make decisions affecting the larger population.
The key to a successful CC is communication. This communication needs to take place at three times during the year: First, in the beginning of the year, the CC needs to make crystal clear what will be expected of each partner and what each can do that will have the most positive impact on compensation. The second is periodic monitoring, generally by the managing partner or team leaders, of progress on meeting expectations. The third communication point comes after the year is completed, when the CC meets with all partners individually to summarize their performance and how it impacted their final compensation for the year.
People often proclaim a system or a procedure to be ineffective, but . . . the real problem is execution — pilot error. The most common partner compensation system by far at firms with eight or more partners is the CC method. The system works! But it's understandable when partners are frustrated by a CC that fails to communicate with them.
For the complete entry, read “Transparency and Partner Compensation.”
From The Marc Rosenberg Blog, May 31, 2016, blog.rosenbergassoc.com.